As 2013 wrapped up a record wave of development, the local economy appears ready to experience a strong ripple effect this year.

It likely won’t be a year of super-sized projects, but a steady flow of new retailers, housing, medical buildings and schools look to add up to another solid year.

“It will be all over, on every side of town,” said Mike Cooper, the city’s director of planning and building services. “We’re going into 2014 much like we ended 2013, with a significant amount of interest in all areas of development.”

Replicating the record-setting pace of 2013 will be tough. Building permit valuations surged toward $600 million, and there was growth in nearly every category, from commercial to residential. Businesses continue to look at relocating or expanding in Sioux Falls.

“It’s very busy,” said Slater Barr, president of the Sioux Falls Development Foundation. “The phone is ringing off the hook. I can’t believe the activity level.”

Barr said interest is “across the board” from many industries. Darrin Smith, the city’s community development director, said he’s seeing increased interest from manufacturers.

“That is one that really seems to be strengthening, local manufacturers wanting to do more and other manufacturers wanting to relocate here,” he said.

Wisconsin-based Glanbia Nutritionals, which started manufacturing its food ingredients in northwest Sioux Falls last year, has caused other companies to look at the city, Smith said.

Businesses confident

In 30 years of banking, First Premier Bank CEO Dana Dykhouse said he rarely has seen the city’s collective balance sheet in better shape.

“The businesses in town, everyone across the board, is in good financial condition and poised for growth,” he said. “Things look good right now.”

A recent regional economic update from Wells Fargo & Co. showed that South Dakota barely grew its gross domestic product in 2012 at 0.2 percent, but noted it has been “a somewhat bifurcated recovery, as urban areas have recovered considerably faster than rural areas.”

Nonfarm employment grew by 1.8 percent in 2012, according to the analysis. That’s slightly better than the national average. The leisure and hospitality sector led the growth, increasing 6.8 percent.

“I’m a big believer in the economic attitude or mentality,” Dykhouse said. “When people think things are going well and feel good about everything going on around them, then they make investments. So I’m optimistic for next year.”

From Michael Bender’s perspective, however, the outlook is “kind of tepid.”

“We’re certainly busy and there seems to be activity … but it’s mostly corporate. It’s more bigger deals than local deals,” said Bender, the principal of Bender Commercial Real Estate Services. “It’s a bit of moving forward, and there are people doing that, but there are a lot of people saying, ‘Let’s slow down a bit.’ ”

Retail ripple

As Montgomery’s Furniture marked its 125th anniversary last year, it also celebrated its best year ever.

“We knew it was inevitable things would be hot again, and they really are now,” president Clark Sinclair said.

In June, the store plans to open an addition that will double the size of its West 41st Street location.

“It’ll be another record year, I think,” Sinclair said. “People are just ready to move forward.”

The expansion, estimated at more than $5 million, is one of the larger retail projects planned for the year. Following a year that saw newcomers Costco, Dick’s Sporting Goods and Fareway enter the market, 2014 might not bring as many national retailers to town.

There are deals in the works, however. Walmart is under construction at 60th Street North and Marion Road and will wait on a public vote in spring to determine its ability to build at 85th Street and Minnesota Avenue. Scheel’s will open its expanded store at 41st Street and Western Avenue this spring.

Sam’s Club continues to look at an east-side location, and other national retailers might decide to open at the Dawley Farm Village shopping area.

“They can’t go west because there’s no land, and they’re willing to go east,” said Craig Lloyd, CEO of Lloyd Cos., which is developing the Dawley project. “We’re not a one-horse town anymore.”

As larger areas fill in with retail, stores and restaurants are building in developing neighborhoods. Van Buskirk Cos. is filling a new retail center at 69th Street and Western Avenue with restaurants, retailers and other neighborhood services.

“Once we got the buildings up and far enough along, it (space) went very quickly,” Mike Van Buskirk said. “Clearly, there’s some demand out there built up in this particular neighborhood.”

The company is working on a larger project involving Lake Lorraine on 130 acres south of Lowe’s near 26th Street and Marion Road. It would combine
national retailers with local retailers in a pedestrian-friendly layout centered around the lake.

“It’s going to be great,” Steve Van Buskirk said. “It gives good, clean access for power retailers, but … you can get in there and have a more intimate shopping experience next to a lake.”

Regardless of the outcome of Walmart’s vote for the southern Sioux Falls location, that area likely will draw new retailers in the coming year. Jerry’s Auto Sales is planning a location south of 85th and Minnesota, and Van Buskirk is talking to other retailers interested in nearby land.

“And we’re seeing a lot of interest all of a sudden in 85th and Tallgrass, on both sides of Tallgrass, residential and commercial,” Cooper said.

The state’s strong agricultural economy also will help Sioux Falls retailers, according to Shawn Lyons, executive director of the South Dakota Retailers Association. He said Sioux Falls has attracted an impressive mix of national and local retailers, but the landscape has become more competitive.

“I think there’s room for everybody, but the pie is only so big,” Lyons said. “The good retailers and restaurants out there recognize what they have to do with their business plan to be competitive.”

Housing might slow

Following a year that saw record new residential construction, the market is expected to slow a bit.

“You have to think in housing there will a breather,” Bender said.

That’s especially true in multifamily projects, he said.

“You just can’t put that many units on the market,” Bender said. “We put more than 900 on the market (in 2013).”

As long as more jobs are created, there will be housing construction, Cooper said.

“But what we’re missing is the entry-level housing,” he said. “We’re not building those anymore. It’s the upper end of the market.”

Uncertainty in interest rates will affect housing, Lloyd said.

“Tell me what interest rates will be and that will be what we’ll do in housing,” he said. “Multifamily, to me, might slow down just because we have to have a soaking-in time for the units on the market, but that could take off again in the fall.”

Van Buskirk Cos., which is working on neighborhoods in eastern, western and southern Sioux Falls, said lot sales have been “tremendous,” especially in growing areas such as Copper Creek and Willow Ridge on the east side.

“That whole area is maturing quite a bit, which is nice to see,” Steve Van Buskirk said. “We’ve had our best year ever out there,” he said of the Willow Ridge neighborhood north of Willow Run Golf Course.

Overall, activity for homebuilders is strong even if it’s not at record-breaking pace going into the new year.

“It’s looking like it’s going to be a good year, maybe not quite as busy, but still good,” said Kevin Zomermaand, owner of Zome’s Construction and past president of the Home Builders Association of the Sioux Empire Inc.

As the labor market tightens, however, a lack of construction workers is creating challenges for builders.

“It’s pretty tough. You can’t find anybody, and everybody’s in the same boat,” Zomermaand said. “It just takes longer to build a house now is all because guys don’t have the manpower.”

Challenges

A lack of space in the city for certain new businesses combined with low unemployment might put a drag on development in the coming year.

“I’m thinking next year we’re going to sell more land again than we have in a long time,” said Dennis Breske of NAI Sioux Falls. “A lot of the vacant space has been absorbed, and all of a sudden we have short supply. That’s been a long time coming.”

Until more land is developed, businesses looking for available buildings might come up short. In some cases, they’re looking at surrounding communities, said Doug Brockhouse, a partner at Bender.

“The challenge is the rental rates people are willing to pay are not tracking at the same rate that the cost of construction has been going up, and you’re just seeing any (speculative) building going on,” he said.

In recent months, the familiar challenge of finding workers also has reappeared as the unemployment rate hovers around 3 percent.

“Workforce development is going to be a huge focus in 2014 … because it has to be,” said Smith, who said city officials and economic development officials are working together on plans. “What we’re hearing from businesses looking at coming here or expanding or even adding three or four jobs is it’s a greater challenge than it was in the past.”

For now, “a good job with good benefits” will attract talented applicants, Smith said. “But I don’t believe that’s going to be good enough long term. We’ve got to do a better job working with the education system … to train young people for specific trades and careers.”

Workforce development always is part of the conversation during business development, Barr said, but at 3 percent unemployment, it becomes a bigger part of the dialogue.

He said the Sioux Falls Development Foundation will work to promote technical education as a viable career path.

“There are an awful lot of good jobs in manufacturing and in the skilled and technical trades that pay extremely well,” he said.

With other cities nationwide slower to recover and add jobs, national marketing efforts might find interest. Both Forward Sioux Falls and the Governor’s Office of Economic Development have undertaken national marketing and public relations campaigns to spread the word about the city and state’s business climate.

“It’s all about branding your community as a vibrant place for life and work,” Barr said. “We need to continue spreading that message across the country to become the poster child for the rising heartland.”